The People's Bank of China partially rolled over loans from its one-year liquidity facility, but kept the lending rate unchanged, a sign it is willing to maintain adequate credit to support a slowing economy but wary of excessive stimulus. While analysts considered it a measured move, many still expect the central bank to step up stimulus this week by guiding benchmark rates for new loans lower on Friday as central banks globally rush to loosen monetary policy.
"The PBOC may see the liquidity released via RRR cuts as providing enough liquidity to the market," said Frances Cheung at Westpac. "A stable MLF rate does not mean LPR cannot fall. There is downside to LPR given its spread over MLF and given the lower funding costs amid the RRR cuts."
The PBOC's move came after data the day before showed economic slowdown deepened in August, which reinforced views China is likely to cut some key interest rates this week to prevent a sharper slump in activity.
Investors now await the latest developments in the Sino-US trade talks, while doubts remain over the progress the two sides could make this time.
Deputy-level US-China trade talks are scheduled to start in Washington on Thursday, the US Trade Representative's office said on Monday, paving the way for high-level talks in October aimed at resolving a bitter, 14-month trade war.
Sectors fell across the board on Tuesday, dragged down by tech firms, with the tech-heavy start-up board ChiNextP closing 2.1% lower.
"The approaching of the 70th anniversary (of the People's Republic of China) made investors more sensitive to changes in policies, which could cause profit-taking following strong gains in sectors like tech," said Zhou Longgang, an analyst with Huachuang Securities.
Tech stocks had been a major driver behind a strong market rally since early August, as they are seen among biggest beneficiaries of lower funding costs amid Beijing's push for technological self sufficiency.